Module II· DCF — Terminal ValueAdvanced
Question
How do you defend the terminal value assumptions in an interview question, 'How confident are you in your TV?'
Answer
A structured answer in four points:
- 'TV accounts for 72% of EV — so we are heavily TV-dependent, which is normal for a 5-year DCF.'
- 'We use both methods — Gordon with g = 2.0% (long-run inflation) and an exit multiple of 8x (comps median minus 0.5x for multiple-compression risk).'
- 'Cross-check: the implied exit multiple from Gordon is 8.4x — within the comps range, so consistent.'
- 'Sensitivity: ±0.5% in g swings EV by ±8%; ±1x on the exit multiple by ±12% — we show the range in the pitch.'
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Pitch tip
this answer signals: you understand the TV leverage effect, use two methods, can cross-check, and know the sensitivity range. A top-quartile answer.